Source: Financial Times —
Spare a thought for the American first-time homebuyer, for whom things have rarely looked so grim.
US home prices rose 40 per cent during the pandemic. Mortgage rates haven’t been this high in 15 years. Wages are higher, but not nearly enough to compensate for these factors. You can see the challenges starkly in the Atlanta Fed’s affordability tracker:
Unsurprisingly, this has resulted in US home sales falling off a cliff. The drop has been more rapid than even the decline in 2007-08:
So far, in these respects, this looks like a classic rapid correction from an overheated market. As Jay Powell recently described it at a Brookings event:
“ . . . You really had a housing bubble. You had housing prices going up at very unsustainable levels and overheating and that kind of thing. So now, now the housing market’s going to go through the other side of that.”
But here’s where things get a bit weird: the bubble is clearly deflating, if not popping, through activity — homes are changing hands at the slowest pace since 2012. But prices have hardly budged.
From the peak in June, prices are down only 1 per cent — and they are still up 10 per cent from a year ago.
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